Gautrain's PPP: political patronage profiteering

Ivo Vegter

Ivo Vegter

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

23 Jun 2011 (South Africa)

What's the point of so-called “public-private partnerships”, if the private partner gets all the profit and takes none of the risks? That's just political patronage, and surprisingly, that's exactly what Gauteng calls it: a “patronage guarantee”.

No wonder the Gautrain's spin doctors were so cavalier in answering my scepticism about its financial viability, by agreeing to let me inspect the books after three years of operation. The Bombela Consortium, which operates the Gautrain, had a dirty little secret: it cannot possibly make a loss. No matter what.

A line item in the Gauteng transport budget for the coming year has revealed that the government will be paying Bombela as much as R360 million a year as a “patronage guarantee.”

In essence, what the government has told the lucky winners of the Gautrain lottery is this: We will guarantee that our people will use your train. And if they don't, we'll take their money by force, and give R360 million a year to you anyway. And then we'll punish them again by making them pay for using cars on the highways. For which they also paid.

What a disgusting barrel of pork this project has turned out to be. The term “patronage” might refer to passenger numbers, but its other meaning, the use of political power to direct benefits to a private party, is equally apt.

Let's just put this deal in perspective: in 2007, it was named the top deal in the world by value, at R25 billion. That amounts to about R9,000 for every single household in Gauteng. Add to that the R20 billion for the Gauteng Freeway Improvement Project, and each household is, on average, R16,000 out of pocket to public-private profiteers.

The select bloggers and journalists who were invited to the lavish Gautrain launch bash were angry when I suggested they were too busy enjoying the money thrown at them to ask any of the hard questions.

Among the questions I proposed at the time were: “How profitable are tickets? To what extent are they subsidised? When will the Gautrain project show positive cashflow? When will it pay for itself? How long will taxpayers have to fund it? What guarantees does Bombela, the lucky operating concessionaire, enjoy?”

Unlike the intrepid bloggerati, the national Department of Transport had asked these questions several times. Its deputy minister, Jeremy Cronin, who was a member of the parliamentary portfolio committee on transport when the deal was struck, told the South African Press Association (SAPA) they simply did not get any answers.

This white elephant is rapidly turning into a foul-smelling example of crony-capitalism. The government is not using its power of taxation to provide you with essential services. It is taking your money to enrich a private monopoly.

It undermines the entire point of public-private partnerships, which is to enlist private capital to make public works projects more efficient and less risky. Van der Merwe once publicly stated: “Through PPP’s government can expand its spending on infrastructure without increasing the burden on the fiscus.”

Really? Care to rephrase that? In this dirty deal, there is a rather considerable burden on the fiscus, as we now know. There is a R360 million-a-year disincentive for Bombela to be efficient. Neither Bombela nor its underwriting bankers, Standard Bank, Rand Merchant Bank and Nedbank, take any risk whatsoever. Their profits are guaranteed by the taxpayer.

Among the claims he took issue with was this: “The Bombela Concessions Company, as the name implies, seeks monopoly profit opportunities from government concessions.”

A line item called “patronage guarantee costs” in the Gauteng Department of Transport's budget does not constitute a monopoly profit opportunity?

One might put his ruffled feathers down to the fact that his company doesn't want to lose those profit opportunities. Bombela doesn't want to lose that political patronage. And judging by the astonishment expressed by Cronin, Braithwaite certainly didn't want to alert anyone that this is how Bombela's cosy deal with Gauteng worked.

Bombela put out this fanciful economic appraisal report that says the Gautrain's cost is justifiable because of how much it will save people. It says, for example, that: “For the year 2016, the travel time saving amount to R38 800 million. This means that the Gautrain could save 11 600 person days (working time) or 3,5 million working days per year.”

How do they know? SAPA now quotes Barbara Jensen, the Gautrain Management Agency spokesperson, to the effect that the company cannot say how long it will take before revenue reaches forecast levels, or how many passengers the Gautrain will need so the Gauteng government doesn't have to pay this “patronage guarantee”.

That's as clear an admission as any that they were just making up numbers to make it sound good. The reality is they have no idea whether the Gautrain's cost is economically justifiable. And they don't care, because they don't need to care.That's why the train doesn't start early enough to be of use to business travellers. A businessman who travels to Gauteng regularly to consult to the provincial government told me he has to hire a car, because not only does the 5:30 am start time of the Gautrain not get him to his 6:00 am flights, but the buses that would get him to the station inexplicably only start running at 6:50 am.

Why should Bombela care that its buses are empty, and its trains half-full? The Gautrain doesn't need your business. In fact, every time you take it, you're paying twice, because you've already guaranteed that it will make money. And if you don't take it, they'll nail you anyway, because they'll make you pay “punitive” charges.

Meanwhile, it is competing unfairly with taxi operators, who've built up a great business serving the poor. These guys work hard. Drivers compete to get on the Johannesburg-Pretoria route, and spend eight hours a day behind the wheel. Owners have investment in vehicle loans to pay off. And who do they now get to compete with? Not someone who does a better job on a level playing field. But a taxpayer-built train, that charges taxpayer-subsidised prices, and is guaranteed to make a profit no matter how badly it performs.

The Gauteng Provincial Government is stealing from the poor, to give to Bombela.

The government is using your money to break private transport operators and undermine the hardworking people of South Africa. If a private company had done this without the benefit of a public patronage, it would have been hammered by the Competition Commission for predatory and anti-competitive behaviour.

The Gautrain deal is a massive waste of taxpayer money, and now appears to be fundamentally corrupt to boot. And if, as Errol Braithwaite told Eyewitness News, this guarantee was envisaged from the start, while Jack van der Merwe said there'd be no burden on the fiscus, and the Department of Transport claims it had no idea, that only means that the corruption was premeditated, in secret.

Proudly South African, they call that shameful train. DM

Ivo Vegter

Ivo Vegter

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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